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Investing in stocks that continually increase their dividends has the dramatic effect of consistently giving investors a raise each and every year. I have kept track of my own personal dividend income since really focusing on dividend growth as a strategy in 2005. Shooting forward almost 3 years and my dividend income has gone from $727 per year to its current $1320 per year.
The growth in this dividend income has come from two sources. The first and most obvious is that I have continued to add dividend growth stocks to my portfolio. Every time that I add a stock the resulting income can be quite substantial. For example when I added Coca-Cola in March 2005 I immediately added almost $30 in dividend income per year to my earnings.
The second and less obvious source of the increase in dividend income is the dividend increases that my dividend stocks have done every year. This is metric that can move quite slowly at first, sometimes feeling like you are getting nowhere. However, over time as dividends are reinvested into more stock and the dividends are raised then the results can be quite dramatic. For example, in June 2006 I bought 16.4821 shares of Wal-Mart when it was throwing off $0.67 per share in dividends. Today, with no additional money added to the stock I now hold 16.9761 shares and the yearly dividend payment from the company is $0.95 per share. My hypothesis is that in 20 years from now the yearly dividends will have risen dramatically and my reinvested shares will be throwing off a very substantial sum of money – enough to retire on.
To create a reminder of the power of my strategy during times when dividend stocks are not performing as well in the market, I have created a quick and dirty chart that shows the trend in my dividend income. Every once in a while I create a new data point with my current dividend income and inevitably it shows my income rising. Here is that chart:
Click to EnlargeThe power of dividends is pretty obvious!
I love this chart as a motivator during any type of market volatility. This does not get affected by the day to day noise. Every long term dividend investor should track this…
Wow, $4/day in passive income without having to work for it, while getting raises. This is it – the american dream at its best 🙂
As for the chart above, I noticed that between march 07 and july 07 your dividend income decreased. Is that an error or is it for real?
How on earth did you buy 16.4821 shares of WalMart?
Hi DGI: Yes – I sold Merck (no dividend increase) at that point and therefore lost a pretty hefty chunk of dividend income.
45Free: I use a broker in Canada called the Candian Shareowner’s Association who allows for fractional shares to be purchased. The best thing about their service is they do dividend reinvestment into fractional shares as well. It really adds up. I beleive in the US, Sharebuilder.com allows you to hold fractional shares.
TDG
Thanks for sharing your chart with us. I was motivated to do a similar analysis recently for my fixed/passive income sources.
If you use a stacked area chart (at least that’s what Excel calls it), you can add different categories (e.g., my categories were Savings, CDs, Bonds, REIT, Equity, and Retirement Equity). I found it was a good way to look at how my asset allocation related to my fixed/passive income. And separating my retirement equity from the rest lets me see how much income I’d have if I retired early (not nearly enough yet…)
This is for 45free and FYI to anyone else that may like to know.
You can also purchase stocks direct and eliminate or reduce fees.
By doing this I have built some of the following positions in my portfolio.
BAC 45.0297
PEP 14.9859
XOM 15.4472
As of Fridays close this position is worth $3954.85 and my total fees to date are only $20
The companies I have used in the example are some of the ones that pay your fees after you set up your account that way you can invest $50 at a time and it ALL GOES TO STOCK. Not brokers
Just to follow up The Dividend Guy’s comment about Sharebuilder — yes, they allow you to own fractional shares.
They also reinvest dividends for free.
Thanks for posting this – I found the chart extremely useful and a good boost to my resolve on my recently construced income portfolio. I’ve promised myself to track my dividend income in a similar manner! Thanks again!
Indeed, Sharebuilder let’s you BUY fractional shares– because you choose how many dollars’ worth you want to buy, not how many shares.
But basically ALL US brokers these days let you buy fractional shares via reinvested dividends. If you buy 100 shares of BAC tomorrow and sign up to reinvest, then roughly 3 months from now you’re going to own 101.9392 shares, or 102.2239, or 100.8823, or something along those lines (depending on what happens to the share price, and on whether BAC cuts its dividend).
Hi Ken,
I think you do a fantastic job at putting all this info together and updating it regularly. I find this very useful and I a msure you have helped investors a lot.
In order to help in the completeness of your work, I would like to point out that, unfrotunately, Middlefield UF.UN has suspended its distribution (see mention below my signature) and I am not aware of any reverting.
A few weeks ago, I spoke with Rob Lauzon, the manager, and he was fairly short of words on the poor performance of that fund … which I own, incidently. I am (along with several other investors) stuck with holding to it for now, otherwise I would loose a lot!
Note that Middlefield was not keen enough to update his info on distributions on their website: http://www.middlefield.com/uranium05.htm#press
“Pas fort!” as we say in French.
In any case, keep up your great job Ken.
Warmest salutations from Québec
Raynald Lachance
http://www.middlefield.com/uranium05.htm
April 28, 2008, as a result of the high volatility in uranium prices over the last several months and its corresponding impact on the Fund’s portfolio holdings, Uranium Focused Energy Fund has decided to suspend distributions effective immediately. The Manager will consider reinstating distributions at a future date based upon the anticipated recovery in uranium prices